Donating cash and property to your favorite charity is beneficial to the charity, but also to you in the form of a tax deduction if you itemize. However, to be deductible, your donation must meet certain IRS criteria.
First, the charity you’re donating to must be a qualified charitable organization, with tax-exempt status. The Exempt Organizations Search tool on the IRS website allows users to search for a specific organization and check its federal tax-exempt status.
Second, contributions must be actually paid, not simply pledged. So, if you pledge $5,000 in 2023 but have paid only $1,500 by Dec. 31, 2023, you can deduct only $1,500 on your 2023 tax return.
Third, substantiation rules apply, and they vary based on the type and amount of the donation. For example, some donated property may require you to obtain a professional appraisal of value.
Many additional rules and limits apply to the charitable donation deduction. Contact the office to learn more.
The pandemic changed the landscape of work for a lot of people, including the numerous business owners who began running their businesses from their homes. Many are still working from their home offices, whether full-time or on a hybrid basis. If you’re self-employed and run your business from home, or perform certain functions there, you might be able to claim deductions for home office expenses against your business income.
How to Qualify
In general, self-employed taxpayers qualify for home office deductions if part of their home is used “ regularly and exclusively” as the principal place of business.
If your home isn’t your principal place of business, you may still be able to deduct home office expenses if:
You physically meet with patients, clients or customers on your premises, or
You use a storage area in your home (or a separate free-standing structure, such as a garage) exclusively and regularly for business.
Keep in mind the requirement that the space be used exclusively for business. For example, if your home office is also a guest bedroom, you can’t deduct the entire space as a home office expense. But if you use the desk area of the room exclusively for business, you can deduct that portion of the room, as long as you otherwise qualify.
Expenses You Can Deduct
Many eligible taxpayers deduct actual expenses when they claim home office deductions. Deductible home office expenses may include:
Direct expenses, such as the cost of painting and carpeting a room used exclusively for business,
A proportionate share of indirect expenses, including mortgage interest, rent, property taxes, utilities, repairs and insurance, and
Depreciation.
But keeping track of actual expenses can take time, and it requires organized recordkeeping.
The Simpler Method
Fortunately, there’s a simplified method: You can deduct $5 for each square foot of home office space, up to $1,500.The cap can make the simplified method less valuable for larger home office spaces. Even for small spaces, taxpayers may qualify for bigger deductions using the actual expense method. So tracking your actual expenses can be worth it.
When claiming home office deductions, you’re not stuck with a particular method. For instance, you might have chosen the actual expense method when you filed your 2022 return, but then use the simplified method when you file your 2023 return next year, and the following year switch back to the actual expense method. The choice is yours.
More Considerations
The amount of your deductions is subject to limitations based on the income attributable to your use of the office. Other rules and limitations may apply. But eligible home office expenses that can’t be deducted because of these limitations can be carried forward and may be able to be deducted in later years.
Also be aware that, if you sell a home on which you claimed home office deductions, there may be tax implications. Contact us for more information.
A Valuable Deduction
You might be wondering why only business owners and the self-employed have been addressed here. Unfortunately, the Tax Cuts and Jobs Act suspended home office deductions from 2018 through 2025 for employees, even if you’re currently working from home because your employer doesn’t provide office space.
But the home office deduction can be valuable to those who’re eligible for it. We can help you determine if you’re eligible and the best method for claiming the deduction in your situation.
San Jose: (408) 252-1800 Watsonville: (831) 726-8500
If you’re self-employed and use your car, SUV or other vehicle for business, you can deduct certain business-related vehicle expenses. Depending on the cost of operating the vehicle or how much you drive it, as well as how much of your use of the vehicle is for business purposes, this can add up to a significant tax deduction.
When completing a tax return, taxpayers have two options: take the standard deduction or itemize their deductions. Most taxpayers use the option that gives them the lowest overall tax. Due to all the tax law changes in recent years, including increases to the standard deduction, that means taking the standard deduction – but not always. Let’s look at a few details about these two options.
Standard deduction
The standard deduction amount increases slightly every year and varies by filing status. Factors that affect the standard deduction amount include the taxpayer’s filing status, whether they are 65 or older or blind, and whether another taxpayer can claim them as a dependent. Taxpayers who are age 65 or older on the last day of the year and don’t itemize deductions are entitled to a higher standard deduction.
Most filers who use Form 1040, U.S. Individual Income Tax Return, can find their standard deduction on the first page of the form. For most filers of Form 1040-SR, U.S. Tax Return for Seniors, the standard deduction is on page 4.
Not all taxpayers can take a standard deduction. Those taxpayers include:
A married individual filing as married filing separately whose spouse itemizes deductions – if one spouse itemizes on a separate return, both must itemize.
An individual who files a tax return for a period of less than 12 months. This situation is uncommon and could be due to a change in their annual accounting period.
An individual who was a nonresident alien or a dual-status alien during the year. However, nonresident aliens who are married to a U.S. citizen or resident alien can take the standard deduction in certain situations.
Itemized deductions
Taxpayers who choose to itemize deductions should file Schedule A, Form 1040, Itemized Deductions. Itemized deductions that taxpayers may claim include:
State and local income or sales taxes
Real estate and personal property taxes
Home mortgage interest
Mortgage insurance premiums on a home mortgage
Personal casualty and theft losses from a federally declared disaster
Gifts to a qualified charity
Unreimbursed medical and dental expenses that exceed 7.5% of adjusted gross income
Some itemized deductions, such as the deduction for taxes, may be limited. Don’t hesitate to contact the office for more information on these limitations or any other questions.
Questions?
If you’re wondering which option is right for you, feel free to give us a call.
As we approach the end of the year, thoughts turn to generosity and gift-giving. Many people choose to do most or all their charitable gifting at the end of the year.
For those that itemize, charitable contributions are taken as an itemized deduction on their individual tax return. For tax year 2021, even if you don’t normally itemize on your tax return you can take an adjustment to your adjusted gross income of up to $300 ($600 for married individuals filing joint returns) for your cash donations.
Below is our list of year-end charitable giving tips:
Save all records of cash and non-cash donations
This includes donations made by check or credit card
If your donation is a cash donation of $250 or greater, you should receive a letter of acknowledgment from the receiving organization
Take pictures of your non-cash donation receipts
Goodwill
Salvation Army
Etc.
Consider making the donation with your credit card for cash flow purposes
You can make the donation by 12/31/2021 and not need to pay until the statement date in 2022
You may be eligible to deduct travel and out-of-pocket expenses incurred for charities
Must be a qualified charity and your time must be for real and substantial services to the charity
You cannot deduct for your time or services provided to the charity
Travel you can deduct (you cannot deduct travel if a significant portion of your trip is for recreation/vacation)
Flights and public transportation
Vehicle expenses
Lodging costs
Cost of meals
Taxi, rideshare, or other transportation costs between the airport or station and your lodging
Out-of-pocket expenses that can be deducted must be necessary and must be
Unreimbursed
Directly related to the time/services provided to the charity
Directly related to services provided
Not personal, family, or living expenses
Other tax-advantaged charitable giving includes Qualified Charitable Distributions (QCDs) and donations of appreciated stock or other assets.
To learn more about how your generosity can benefit you come tax time, please reach out to email@wheelercpa.com or call our office:
